SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 1998
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
------ ------
Commission File No. 0-22535
SISTERSVILLE BANCORP, INC.
-------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 31-1516424
- --------------------------------------------- ------------------
(State or Other Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification No.
726 Wells Street, Sistersville, West Virginia 26175
- ---------------------------------------------- -----------------
(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (304) 652-3671
--------------
Securities registered under to Section 12(b) of the Exchange Act: None
------
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO .
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $2,350,673.
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on $15.50 per share sale price of the
registrant's Common Stock on April 29, 1998, was $8,309,829.
As of June 10, 1998, there were 628,357 outstanding shares of the
registrant's Common Stock.
Transition Small Business Disclosure Format (check one):
YES NO X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year
ended March 31, 1998 (the "Annual Report"). (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders for the Fiscal Year ended March 31, 1998. (Part III)
<PAGE>
PART I
Item 1. Business
- -----------------
Business of the Company
Sistersville Bancorp, Inc. (the "Company") is a Delaware corporation
organized in March 1997 at the direction First Federal Savings and Loan
Association of Sistersville (the "Association") to acquire all of the capital
stock that the Association issued in its conversion from the mutual to stock
form of ownership (the "Conversion"). On June 25, 1997, the Conversion was
completed and the Association became a wholly owned subsidiary of the Company
and changed its name to First Federal Savings Bank (the "Bank"). The Company is
a unitary savings and loan holding company which, under existing laws, generally
is not restricted in the types of business activities in which it may engage
provided that the Bank retains a specified amount of its assets in
housing-related investments. The Company conducts no significant business or
operations of its own other than holding all of the outstanding stock of the
Bank and investing the Company's portion of the net proceeds obtained in the
Conversion.
The Bank is a federally chartered stock savings bank headquartered in
Sistersville, West Virginia. The Bank is subject to examination and
comprehensive regulation by the Office of Thrift Supervision ("OTS") and its
deposits are federally insured by the Savings Association Insurance Fund
("SAIF"). The Bank is a member of and owns capital stock in the FHLB of
Pittsburgh, which is one of the 12 regional banks in the FHLB System. Unless
otherwise stated, the term "Bank" refers to both the Bank's and Company's
activities on a consolidated basis.
The Bank operates a traditional savings bank business, attracting
deposit accounts from the general public and using those deposits, together with
other funds, primarily to originate and invest in loans secured by single-family
residential real estate.
Competition
The Bank is one of many financial institutions serving its market area
which consists of Tyler, Pleasants, Wetzel and Wood Counties in West Virginia.
The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Bank's market area. The Bank has been able to
maintain its position in mortgage loan originations, market share, and deposit
accounts throughout its market areas by virtue of its local presence,
competitive pricing, and referrals from existing customers. Deposit competition
also includes a number of insurance products sold by local agents and investment
products such as mutual funds and other securities sold by local and regional
brokers. Loan competition varies depending upon market conditions and comes from
other insured financial institutions such as commercial banks, thrift
institutions, credit unions, multi-state regional banks, and mortgage bankers.
Lending Activities
General. The Bank's loan portfolio predominantly consists of fixed-rate
mortgage loans secured by one- to four-family residences and to a lesser extent,
the Bank originates construction and consumer loans. It is the current policy of
the Bank to remain primarily a portfolio lender. Mortgage loans originated by
the Bank in its portfolio generally include due-on-sale clauses that provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event that the borrower transfers ownership of the property without the
Bank's consent.
2
<PAGE>
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of the Company's loan portfolio by type of loan and type of
security on the dates indicated:
<TABLE>
<CAPTION>
At March 31,
-----------------------------------------------------------------
1998 1997
-------------------------------- -----------------------------
$ % $ %
--- --- --- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Type of Loans:
Real Estate Loans:
Construction......................................... $ 701 2.88% $ 141 0.63%
1-4 family.......................................... 22,594 92.78 21,036 94.36
Multi-family......................................... -- 0.00 -- 0.00
Commercial........................................... -- 0.00 -- 0.00
Consumer loans:
Automobiles.......................................... 699 2.87 764 3.43
Savings accounts..................................... 234 0.96 296 1.33
Other................................................ 27 0.11 29 0.13
Commercial............................................. 96 0.39 27 0.12
------ ------ ------ -----
Total loans............................................ 24,351 100.00% 22,293 100.00%
====== ======
Less:
Loans in process....................................... (463) (323)
Deferred loan origination fees and costs............... (72) (81)
Allowance for possible loan losses..................... (169) (164)
------ ------
Total loans, net..................................... $23,647 $21,725
====== ======
</TABLE>
3
<PAGE>
Loan Maturity Tables
The following table sets forth the maturity of the Company's loan
portfolio at March 31, 1998. The table does not include prepayments or scheduled
principal repayments. Prepayments and scheduled principal repayments on loans
totalled $ 3.5 million and $ 3.0 million for the years ended March 31, 1998 and
1997, respectively. All mortgage loans are shown as maturing based on
contractual maturities.
<TABLE>
<CAPTION>
1-4 Family
Real Estate
Mortgage Construction Consumer Commercial Total
-------- ------------ -------- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Non-performing $ 166 $ -- $ -- $ -- $ 166
Amounts Due:
Within 3 months............. 3 -- 7 -- 10
3 months to 1 Year.......... 11 -- 22 -- 33
After 1 year:
1 to 3 years.............. 102 -- 369 17 488
3 to 5 years.............. 359 -- 311 -- 670
5 to 10 years............. 2,268 -- 251 -- 2,519
10 to 20 years............ 11,244 -- -- 79 11,323
Over 20 years............. 8,441 701 -- 9,142
------- ------ ------ ---- ------
Total amount due............ $22,594 $ 701 $ 960 $ 96 $24,351
====== ====== ====== ==== ======
Less:
Allowance for loan loss..... 135 -- 34 -- 169
Loans in process............ 56 407 -- -- 463
Deferred loan fees.......... 72 -- -- -- 72
------ ------ ------ ---- ------
Loans receivable, net....... $22,331 $ 294 $ 926 $ 96 $23,647
====== ====== ======= ==== ======
</TABLE>
The following table sets forth the dollar amount of all loans due after
March 31, 1999, which have pre-determined interest rates and which have floating
or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- --------
(In Thousands)
<S> <C> <C> <C>
1-4 family....................... $22,372 $ 42 $22,414
Commercial....................... 96 96
Construction..................... 701 0 701
Consumer......................... 931 0 931
------ ----- ------
Total.......................... $24,100 $ 42 $24,142
====== ===== ======
</TABLE>
4
<PAGE>
The following table shows the total loan originations,
repayments, and sales activity by the Bank for the periods indicated:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------
1998 1997
------- ------
<S> <C> <C>
Total gross loans receivable
at beginning of period........... $22,293 $20,745
Loans originated:
1-4 family residential............ 3,714 2,326
Construction loans................ 1,222 1,426
Consumer loans.................... 551 782
Commercial business loans......... 80
------
Total loans originated.............. $ 5,567 $ 4,534
Loan principal repayments........... (3,508) (2,986)
Charge-offs......................... (1) 0
------- ------
Net loan activity................... $ 2,058 $ 1,548
Total gross loans receivable
at end of period................. $24,351 $22,293
====== ======
</TABLE>
One- to Four-Family Residential Loans. The Bank's primary lending
activity consists of the origination of one- to four-family fixed-rate
residential mortgage loans secured by property located in the Bank's primary
market areas. The Bank also originates construction permanent loans on one- to
four-family residences. The Bank generally originates owner-occupied one- to
four-family residential mortgage loans in amounts up to 80% of the lesser of the
appraised value or selling price of the mortgaged property without requiring
mortgage insurance. The Bank may originate a mortgage loan in an amount up to
90% of the lesser of the appraised value or selling price of a mortgaged
property, however, mortgage insurance is required for the amount in excess of
80% of such value. The Bank generally retains all of the mortgage loans that it
originates. Fixed-rate loans can have maturities of up to 25 years depending on
the terms of the loan.
5
<PAGE>
Consumer Loans. The Bank offers consumer loans in order to provide a
wider range of financial services to its customers. Federal savings associations
are permitted to make secured and unsecured consumer loans up to 35% of their
assets. In addition, savings associations have lending authority above the 35%
limitation for certain consumer loans, such as home improvement, credit card,
education, automobile, and savings account or passbook loans. Secured consumer
loans are made at an interest rate that is 2% above the rate paid on the
underlying deposit account. Consumer and other loans totalled $960,000, or 3.9%
of the Bank's total loans, of which loans secured by automobiles totalled
$699,000, or 2.9% of the Bank's total loans at March 31, 1998. The Bank
originates automobile loans with terms of up to six years for both new and used
automobiles. Most of these automobile loans are originated directly by the Bank.
Commercial Loans. The Bank had two commercial loan participations as of
March 31, 1998 totalling $96,000. These loans were made to a local hospital for
working capital purposes and a local municipality for a commercial line of
credit.
Construction Lending. The Bank makes construction loans primarily for
the construction of single-family dwellings. The Bank will permit owner-built
construction loans. The aggregate outstanding balance of such loans on March 31,
1998 was $701,000, representing 2.9% of the Bank's total loan portfolio. All of
these loans were made to persons who are constructing properties for the purpose
of occupying them. Loans made to individual property owners are
"construction-permanent" loans which generally provide for the payment of
interest only during a construction period, after which the loans convert to a
permanent loan at original contractual rates.
Loan Underwriting Risks. While consumer or other loans provide benefits
to the Bank's asset/liability management program by reducing the Bank's exposure
to interest rate changes, due to their generally shorter terms, and producing
higher yields, such loans may entail significant additional credit risks
compared to owner-occupied residential mortgage lending. However, the Bank
believes that the higher yields and shorter terms compensate the Bank for the
increased credit risk associated with such loans.
In addition, due to the type and nature of the collateral, and, in some
cases the absence of collateral, consumer lending generally involves more credit
risk when compared with one- to four-family residential lending. Consumer
lending collections are typically dependent on the borrower's continuing
financial stability, and thus, are more likely to be adversely effected by job
loss, divorce, illness, and personal bankruptcy. In most cases, any repossessed
collateral for a defaulted consumer loan will not provide an adequate source of
repayment of the outstanding loan balance. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower and is
usually turned over to a collection agency.
Construction lending is generally considered to involve a higher level
of credit risk than one- to four-family residential lending since the risk of
loss on construction loans is dependent largely upon the accuracy of the initial
estimate of the individual property's value upon completion of the project and
the estimated cost (including interest) of the project. If the cost estimate
proves to be inaccurate, the Bank may be required to advance funds beyond the
amount originally committed to permit completion of the project.
Loan Approval Authority and Underwriting. The Bank has established
various lending limits for its officers and maintains a Loan Committee. All
mortgage loan applications are reviewed and approved by the Board of Directors,
which meets twice per month. The Loan Committee may approve mortgage loans but
such action must be ratified at a subsequent Board meeting. The President and
Vice
6
<PAGE>
President of the Bank each have the authority to approve all applications for
consumer loans up to $25,000 for non-real estate secured loans and up to $2,000
for unsecured loans.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered, income and certain other information is
verified and, if necessary, additional financial information is requested. An
appraisal from a licensed fee appraiser of the real estate intended to be used
as security for the proposed loan is obtained. For construction/permanent loans,
funds advanced during the construction phase are held in a loan-in-process
account and disbursed based upon various stages of completion in accordance with
the results of inspection reports that are based upon physical inspection of the
construction by loan personnel. For real estate loans, a title examination is
required to be provided by the borrower's attorney. Borrowers must also obtain
fire and casualty insurance (for loans on property located in a flood zone,
flood insurance is required) prior to the closing of the loan. The Bank is named
as mortgagee/loss payee of this insurance.
Loan Commitments. The Bank issues written commitments to prospective
borrowers on all approved mortgage loans which generally expire within 90 days
of the date of issuance. The Bank charges an application fee to lock in rates or
to secure commitments. In some instances, commitments may be renewed or
extended. At March 31, 1998, the Bank had $891,000 of outstanding commitments to
originate loans and $463,000 in undisbursed funds related to construction loans.
Management believes that less than 1% of loan commitments expire.
Loans to One Borrower. Regulations limit loans to one borrower or
affiliated group of borrowers in an amount equal to 15% of unimpaired capital
and unimpaired surplus of the Bank. The Bank is authorized to lend up to an
additional 10% of unimpaired capital and unimpaired surplus if the loan is fully
secured by readily marketable collateral. At March 31, 1998, the Bank's lending
limit for loans to one borrower was approximately $1.2 million.
At March 31, 1998, the largest loan of the Bank was a $265,000 loan
that was secured by the borrower's residence.
Non-Performing and Problem Assets
Loan Delinquencies. The Bank's collection procedures provide that when
a mortgage loan is 30 days past due, a delinquent notice is sent to the
borrower. If payment is still delinquent after 90 days, the borrower will
receive a notice of default establishing a date by which the borrower must bring
the account current or foreclosure proceedings will be instituted. If the
delinquency continues, similar subsequent efforts are made to eliminate the
delinquency. If the loan continues in a delinquent status for 90 days past due
and no repayment plan is in effect, the account is turned over to an attorney
for foreclosure. Management meets regularly to determine when foreclosure
proceedings should be initiated and the borrower is notified when foreclosure
has been commenced. At March 31, 1998, nonaccrual loans and loans past due
greater than 90 days totalled $166,000 or .52% of total assets.
Loans are reviewed on a monthly basis and are placed on non-accrual
status when considered doubtful of collection by management. Generally, loans
past due 90 days or more as to principal or interest are placed on non-accrual
status. Interest accrued and unpaid at the time a loan is placed on non-accrual
status is charged against interest income. Subsequent cash payments are
generally applied to interest income unless, in the opinion of management, the
collection of principal and interest is doubtful. In those cases, subsequent
cash payments would be applied to principal.
7
<PAGE>
Non-performing Assets
The following table sets forth information regarding non-accrual loans,
real estate owned, and certain other repossessed assets and loans. As of the
dates indicated, the Bank had no loans categorized as troubled debt
restructuring within the meaning of SFAS 15.
<TABLE>
<CAPTION>
March 31,
-------------------------------------
1998 1997
------------ ------------
(Dollars in Thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
One- to four-family................................. $ 166 $ 10
Multi-family........................................ -- --
Commercial.......................................... -- --
Construction........................................ -- --
Consumer.............................................. -- --
Commercial............................................ -- --
-------- --------
Total non-accrual loans............................... 166 10
-------- --------
Accruing loans greater than 90 days past due:
Mortgage loans:
One- to four-family................................. -- 68
Multi-family........................................ -- --
Commercial.......................................... -- --
Construction........................................ -- --
Consumer.............................................. -- 2
Commercial............................................ -- --
-------- --------
Total accruing loans greater than 90 days
past due............................................ -- 70
-------- --------
Total non-performing loans............................ 166 80
Real estate acquired in settlement of loans........... -- --
-------- --------
Other non-performing assets........................... 166 $ 80
======== ========
Total non-performing loans to total loans............. 0.70% 0.37%
======== ========
Total non-performing loans to total assets............ 0.52% 0.30%
======== ========
Total non-performing assets to total assets........... 0.52% 0.30%
======== ========
</TABLE>
Interest income that would have been recorded on loans accounted for on a
non-accrual basis under the original terms of such loans was $5,500 for the year
ended March 31, 1998 and $-0- was collected and included in the Bank's interest
income from non-accrual loans for the year ended March 31, 1998.
8
<PAGE>
Classified Assets
OTS Regulations provided for a classification system for problem assets
of insured institutions. Under this classification system, probable assets of
insured institutions are classified as "substandard," "doubtful," or "loss." An
asset is considered substandard if it is inadvertently protected by the current
equity and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as doubtful have all the weaknesses inherent in
those classified as substandard, with the added characteristics that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as loss are those considered "uncollectible" and
of such little value that their continuance as assets without the establishment
of a specific loss reserve is not warranted. Assets may be designated "special
mention" because a weakness that does not currently warrant classification in
one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset and the amount of its
valuation allowances is subject to review by the OTS, which may order the
establishment of additional general or specific loss allowances. A portion of
general loss allowances established to cover possible losses related to assets
classified as substandard or doubtful may be included in determining an
institutions' regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital.
In accordance with its classification of assets policy, the Bank
regularly reviews the problem assets in its portfolio to determine whether any
assets require classification in accordance with applicable regulations. On the
basis of management's review of its assets, at March 31, 1998, the Bank had
classified $111,000 of assets as substandard, no assets as doubtful or loss, and
$98,000 of assets as special mention.
Real Estate Acquired in Settlement of Loans
Real estate acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until it is sold. When
Property is acquired, it is recorded at the fair value at the date of
foreclosure less estimated costs of disposition.
9
<PAGE>
Analysis of Allowance for Loan Losses
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
At March 31,
--------------------------
1998 1997
-------- -------
Total gross loans outstanding............... $24,351 $22,293
====== ======
Average gross loans outstanding............. 23,486 22,025
====== ======
Allowance balances (at beginning of
period)................................... $ 164 $ 156
Provision (credit):
Residential............................... 4 5
Commercial real estate.................... -- --
Consumer.................................. 2 3
Charge-offs
Residential............................... -- --
Consumer.................................. (1) --
Commercial................................ -- --
Recoveries:
Residential............................... -- --
Commercial real estate.................... -- --
Consumer.................................. -- --
---- -----
Allowance balance (at end of period)........ 169 $164
=== ===
Allowance for loan losses as a
percentage of total loans outstanding...... 0.69% 0.74%
Net loans charged off as a percentage
of average loans outstanding............... 0.00% 0.00%
- --------------------
(1) Non-performing assets include non-accrual loans, accruing loans more than
90 days past due and real estate acquired in settlement of loans.
Allocation of the Allowance for Loan Losses
The following table sets forth the allocation of the allowance for loan
losses by category as prepared by the Bank. In management's opinion, the
allocation has, at best, a limited utility. It is based on management's
assessment as of a given point in time of the risk characteristics of each of
the component parts of the total loan portfolio and is subject to changes as and
when the risk factors of each such component part change. The allocation is not
indicative of either the specific amounts or the loan categories in which future
charge-offs may be taken, nor should it be taken as an indicator of future loss
trends. In addition, by presenting the allocation, management does not mean to
imply that the allocation is exact or that the allowance has been precisely
determined from the allocation. The allocation of the allowance to each category
is not necessarily indicative of future loss in any particular category and does
not restrict the use of the allowance to absorb losses in any category.
10
<PAGE>
<TABLE>
<CAPTION>
At
March 31,
---------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
Percent of Percent of
Loans in Each Loans in Each
Category Category
Amount to Total Loans Amount to Total Loans
------ -------------- ------ --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Mortgages:
One- to four-family............... $135 92.78% $131 94.36%
Construction...................... -- 2.88 -- 0.63
Consumer............................ 34 3.94 33 4.88
Commercial.......................... -- 0.40 -- 0.12
---- ------ --- ------
Total.......................... $169 100.00% $164 100.00%
=== ====== === ======
</TABLE>
Investment Activities
General. The Bank is required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short term
securities and certain other investments. See "Regulation - Federal Home Loan
Bank System" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources." The Bank has
maintained a liquidity portfolio in excess of regulatory requirements. Liquidity
levels may be increased or decreased depending upon the yields on investment
alternatives and upon management's judgment as to the attractiveness of the
yields then available in relation to other opportunities and its expectation of
future yield levels, as well as management's projections as to the short term
demand for funds to be used in the Bank's loan origination and other activities.
The Company classifies its investments as securities available for sale or
investments securities held to maturity in accordance with SFAS No. 115. At
March 31, 1998, the Company's investment portfolio policy allowed investments in
instruments such as U.S. Treasury obligations, U.S. federal agency or federally
sponsored agency obligations, municipal obligations, mortgage-backed securities,
certificates of deposit issued by the FHLB or an FDIC insured financial
institution, federal funds, including FHLB overnight and term deposits (up to
six months). The Board of Directors may authorize additional investments.
The Company's securities available for sale and investment securities
held to maturity portfolios at March 31, 1998 did not contain securities of any
issuer with an aggregate book value in excess of 10% of the Bank's equity,
excluding those issued by the United States Government or its agencies. As of
March 31, 1998, the Bank's investment portfolio was comprised of FHLB stock,
FHLMC stock, U.S. Government and agencies securities and mortgage-backed
securities with market value of $5.9 million.
Mortgage-Backed Securities. To supplement lending activities, the
Company has invested in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. Mortgage-backed securities represent a participation
interest in a pool of single-family or other type of mortgages, the principal
and interest payments on which are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors such as the
Bank. These quasi-governmental agencies guarantee the payment of principal and
interest to investors.
11
<PAGE>
The Company's mortgage-backed securities were classified as held to
maturity at March 31, 1998 and were issued by the Government National Mortgage
Bank ("GNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"), representing
participating interests in direct pass-through pools of long-term mortgage loans
originated and serviced by the issuers of the securities. Expected maturities
will differ from contractual maturities due to scheduled repayments and because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages (i.e., fixed-rate or adjustable-rate), as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.
At March 31, 1998, the Company held mortgage-backed securities in its
investment securities held to maturity portfolio with an amortized cost of
$527,000. The average yield on mortgage-backed securities at March 31, 1998 was
6.93%.
Investment Portfolio. The following table sets forth the carrying value
of the Bank's investment securities portfolio, short-term investments, FHLB
stock, and mortgage-backed securities at the dates indicated. At March 31, 1998
and 1997, the market value of the Company's investment securities portfolio and
mortgage- backed securities portfolio were 7.4 million and 4.4 million,
respectively.
<TABLE>
<CAPTION>
At March 31,
------------------------------
1998 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Investment Securities:
U.S. Government Securities........... $4,111 $1,466
FHLMC Stock.......................... 1,073 650
----- -----
Total Investment Securities........ 5,184 2,116
Interest-bearing Deposits............. 1,469 1,713
FHLB Stock............................ 203 203
Mortgage-backed Securities............ 527 328
Mortgage-backed Securities Held
For Sale.............................. 0 0
----- -----
Total Investments.................. $7,383 $4,360
===== =====
</TABLE>
12
<PAGE>
The following table sets forth information regarding the carrying
values, and weighted average yields and maturities of the Company's investment
securities portfolio at March 31, 1998. The following table does not take into
consideration the effects of scheduled repayments or the effects of possible
prepayments.
<TABLE>
<CAPTION>
As of March 31, 1998
------------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
----------------- ----------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Securities:
U.S. government
securities
available
for sale(2) ......... 3,106 5.45% $ 205 6.05% 800 6.54% -- -- $4,111 5.61% $4,111
FHLMC Stock(2) ........ 1,073 1.02 -- -- -- -- -- -- 1,073 1.02 1,073
Interest-bearing
deposits in other
financial
institutions(1) ..... 1,469 5.50 -- -- -- -- -- -- 1,469 5.50 1,469
FHLB Stock(1) ......... 203 6.41 -- -- -- -- -- -- 203 6.41 203
------ ---- ------ ---- ------ ---- ------ ----- ------ ---- ------
$5,851 4.68% $ 205 6.05% $ 800 6.54% $ 0 -- $6,856 4.94% $6,856
Mortgage-backed
securities(1) ....... -- -- $ 233 6.85% -- -- $ 294 7.00% $ 527 6.93% $ 536
------ ---- ------ ---- ------ ---- ------ ----- ------ ---- -----
Total ............... $5,851 4.68% $ 438 6.48% $ 800 6.54 $ 294 7.00% $7,383 5.08% $7,392
====== ==== ====== ==== ====== ==== ====== ===== ====== ==== =====
</TABLE>
- --------------------
(1) Recorded at cost.
(2) Recorded at market value.
13
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. The Bank also derives funds from the amortization
and prepayment of loans, sales, maturities, and calls of securities, and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions. The
Bank may also borrow funds from the FHLB as a source of funds.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market areas through the offering of a selection
of deposit instruments including savings accounts, NOW accounts, money market
accounts, and time deposits or certificate of deposit accounts. Deposit account
terms vary according to the minimum balance required, the time period the funds
must remain on deposit, and the interest rate, among other factors.
Borrowings
The Bank may obtain advances from the FHLB of Pittsburgh to supplement
its supply of lendable funds. Advances from the FHLB of Pittsburgh are typically
secured by a pledge of the Bank's stock in the FHLB of Pittsburgh and a portion
of the Bank's first mortgage loans. Each FHLB borrowing has its own interest
rate, which may be fixed or variable, and range of maturities. The Bank, if the
need arises, may also access the Federal Reserve Bank discount window to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. At March 31, 1998, the Bank had no borrowings outstanding from the
FHLB of Pittsburgh. In addition, the Bank had no FHLB advances outstanding
during the year ended March 31, 1998 and 1997.
Personnel
At March 31, 1998, the Bank had 9 full-time and 3 part-time employees.
None of the Bank's employees are represented by a collective bargaining group.
The Bank believes that its relationship with its employees is good.
REGULATION
Set forth below is a brief description of certain laws which relate to
the regulation of the Bank and the Company. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS will have enforcement authority
over the Company and its non-savings association subsidiaries, should such
subsidiaries be formed, which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association. This regulation and oversight is intended primarily for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Company.
14
<PAGE>
QTL Test. As a unitary savings and loan holding company, the Company
generally will not be subject to activity restrictions, provided the Bank
satisfies the QTL test. If the Company acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to restrictions applicable to bank holding companies and
those activities specified by the OTS as permissible for a multiple savings and
loan holding company, unless such other associations each also qualify as a QTL
or were acquired in a supervised acquisition. See "- Qualified Thrift Lender
Test."
Bank Regulation
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements. The Bank is also subject to certain
reserve requirements promulgated by the Board of Governors of the Federal
Reserve System ("Federal Reserve System").
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). Insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator. The FDIC may also prohibit an insured
depository institution from engaging in any activity the FDIC determines poses a
serious threat to the SAIF.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund,
depending upon the institution's risk classification. This risk classification
is based on an institution's capital group and supervisory subgroup assignment.
In addition, the FDIC is authorized to increase such deposit insurance rates on
a semi-annual basis if it determines that such action is necessary to cause the
balance in the SAIF to reach the designated reserve ratio of 1.25% of
SAIF-insured deposits within a reasonable period of time. The FDIC may impose
special assessments on SAIF members to repay amounts borrowed from the U.S.
Treasury or for any other reason deemed necessary by the FDIC. Prior to
September 30, 1996, savings associations paid within a range of .23% to .31% of
domestic deposits and the SAIF was substantially underfunded. By
15
<PAGE>
comparison, prior to September 30, 1996, members of the BIF were required to pay
substantially lower, or virtually no, federal deposit insurance premiums.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. The Bank recorded a $129,000 pre-tax
expense for this assessment at September 30, 1996. Beginning January 1, 1997,
deposit insurance assessments for SAIF members were reduced to approximately
.064% of deposits on an annual basis; this rate may continue through the end of
1999. During this same period, BIF members are expected to be assessed
approximately .013% of deposits. Thereafter, assessments for BIF and SAIF
members should be the same and the SAIF and BIF may be merged. It is expected
that these continuing assessments for both SAIF and BIF members will be used to
repay outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Bank declined by approximately 70% from rates in effect prior to September 30,
1996.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets.
As of March 31, 1998, the Bank had tangible, core and risk-based
capital of $7,831,000, $7,831,000 and 8,000,000 respectively, which amounts
significantly exceed all applicable regulatory capital requirements of the OTS.
See Note 7 of Notes to Consolidated Financial Statements.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
March 31, 1998, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
In January 1998, the OTS proposed amendments to its current regulations
with respect to capital distributions by savings associations. Under the
proposed regulation, savings associations that would remain at least adequately
capitalized following the capital distribution, and that meet other specified
requirements, would not be required to file a notice or application for capital
distributions (such as cash dividends) declared below specified amounts. Under
the proposed regulation, savings associations which
16
<PAGE>
are eligible for expedited treatment under current OTS regulations are not
required to file a notice or an application with the OTS if (i) the savings
association would remain at least adequately capitalized following the capital
distribution and (ii) the amount of the capital distribution does not exceed an
amount equal to the savings association's net income for that year to date, plus
the savings association's retained net income for the previous two years. Thus,
under the proposed regulation, only undistributed net income for the prior two
years may be distributed in addition to the current year's undistributed net
income without the filing of an application with the OTS. Savings associations
which do not qualify for expedited treatment or which desire to make a capital
distribution in excess of the specified amount, must file an application with,
and obtain the approval of, the OTS prior to making the capital distribution.
Under certain other circumstances, savings associations will be required to file
a notice with OTS prior to making a capital distribution. Savings associations
which are subsidiaries of holding companies, like the Bank, will be required to
file a notice with OTS prior to making a capital distribution. The OTS proposed
limitations on capital distributions are similar to the limitations imposed upon
national banks. The Bank is unable to predict whether or when the proposed
regulation will become effective.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If the Bank maintains an appropriate level
of qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualifies as a QTL, it will continue to enjoy full borrowing
privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65%
of portfolio assets (defined as all assets minus intangible assets, property
used by the institution in conducting its business and liquid assets equal to
10% of total assets). Certain assets are subject to a percentage limitation of
20% of portfolio assets. In addition, savings associations may include shares of
stock of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of March 31,
1998, the Bank was in compliance with its QTL requirement with approximately
94.8% of its assets invested in QTIs.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets in each calendar quarter
equal to a certain percentage of the sum of its net withdrawable deposit
accounts and borrowings payable in one year or less at the end of the preceding
quarter, or the average daily balance of its net withdrawable deposit accounts
and borrowings payable in one year or less during the preceding quarter. The
liquidity requirement may vary from time to time (between 4% and 10%) depending
upon economic conditions and savings flows of all savings associations. At March
31, 1998, the Bank's required liquidity ratio was 4%, and its actual ratio was
21.5%.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances
17
<PAGE>
maintained to meet the reserve requirements imposed by the Federal Reserve
System may be used to satisfy the liquidity requirements that are imposed by the
OTS. At March 31, 1998, the Bank was in compliance with these Federal Reserve
Board requirements.
Item 2. Description of Property
-------------------------------
(a) Properties.
Currently, the Company does not own real property but utilizes the
offices of the Bank. The Bank operates from its office located at 726 Wells
Street, Sistersville, West Virginia. The Bank owns this office facility. As of
March 31, 1998, the total net investment in office property and equipment was
$378,000.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's
investment policies and any regulatory or Board of Directors' percentage of
assets limitations regarding certain investments. The Bank's investments are
primarily acquired to produce income, and to a lesser extent, possible capital
gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business - Lending Activities," "Item 1. Business - Bank Regulation," and
"Item 2. Description of Property. (a) Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities" and "Item 1. Business - Bank Regulation."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities,"
"Item 1. Business - Bank Regulation."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
- -------------------------
There are various claims and lawsuits in which the Company or the Bank
are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans, and other issues
incident to the Bank's business. In the opinion of management, no material loss
is expected from any of such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
18
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Corporate
Profile" and "Stock Price Information" of the Company's Annual Report is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Registrant's financial statements listed under Item 13 are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants On Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
There were no changes in or disagreements with accountants on
accounting and financial disclosure during the last fiscal year.
PART III
Item 9. Directors Executive Officers, Promoters and Control Persons: Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
- ---------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Proposal I - Information with
Respect to Nominees for Director, Directors Continuing in Office, and Executive
Officers - Election of Directors" and " - Biographical Information" in the
"Proxy Statement" is incorporated herein by reference.
Item 10. Executive Compensation
- --------------------------------
The information contained in the section captioned "Directors and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the chart in the section captioned "Voting
Securities and Principal Holders Thereof" and to the first
chart in the section captioned "I - Information with Respect
to Nominees for Director, Directors Continuing in Office, and
Executive Officers" in the Proxy Statement.
19
<PAGE>
(c) Management of the Registrant knows of no arrangements,
including any pledge by any person of securities of the
Registrant, the operation of which may at a subsequent date
result in a change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
Item 13. Exhibits, List and Reports on Form 8-K
- -----------------------------------------------
(a) The following documents are filed as a part of this report:
1. The following financial statements and the report of
independent accountants of the Registrant included in the Annual Report for the
fiscal year ended March 31, 1998, are incorporated herein by reference and also
in Item 7 of this report.
Report of Independent Auditors
Consolidated Balance Sheet as of March 31, 1998 and 1997.
Consolidated Statements of Income for the Years Ended March 31, 1998
and 1997.
Consolidated Statements of Stockholders' Equity for the Years Ended
March 31, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years Ended March 31,
1998 and 1997.
Notes to Consolidated Financial Statements.
2. Other than as set forth below, Financial Statement
Schedules for which provision is made in the applicable accounting regulations
of the SEC are not required under the related instructions or are inapplicable
and therefore have been omitted.
3. The following exhibits are included in this Report or
incorporated herein by reference:
<TABLE>
<CAPTION>
<S> <C>
(a) List of Exhibits:
3(i) Certificate of Incorporation of Sistersville Bancorp, Inc.*
3(ii) Bylaws of Sistersville Bancorp, Inc.*
10.1 Employment Agreement with Stanley M. Kiser*
11 Statement regarding computation of earnings per share
13 Portions of Annual Report to Stockholders for the fiscal year ended March 31, 1998
</TABLE>
20
<PAGE>
21 Subsidiaries of the Registrant
27 Financial Data Schedule**
- ---------------------
* Incorporated by reference to the registration statement on Form S-1 (File
No. 333-23147) declared effective by the Commission on May 12, 1997.
** Filed in electronic format only.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SISTERSVILLE BANCORP, INC.
Dated: June 4, 1998 By: /s/Stanley M. Kiser
---------------------------
Stanley M. Kiser
President, Chief Executive
Officer, and Director (Duly
Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/Stanley M. Kiser By: /s/Lester C. Doak
---------------------------- ----------------------------
Stanley M. Kiser Lester C. Doak
President, Chief Executive Officer, Chairman of the Board
and Director (Principal Executive
Officer)
Date: June 4, 1998 Date: June 4, 1998
By: /s/Ellen E. Thistle By: /s/Guy L. Nichols
---------------------------- ----------------------------
Ellen E. Thistle Guy L. Nichols
Director Director
Date: June 4, 1998 Date: 6-4, 1998
By: /s/David W. Miller By: /s/Dorsey R. Ash
---------------------------- ----------------------------
David W. Miller Dorsey R. Ash
Director Director
Date: 6-4, 1998 Date: June 4, 1998
By: /s/Gary L. Ward By: /s/Margaret A. Peters
---------------------------- ----------------------------
Gary L. Ward Margaret A. Peters
Director Director
Date: 6/4, 1998 Date: June 4, 1998
By: By: /s/James E. Willison
---------------------------- ----------------------------
Charles P. LaRue James E. Willison
Director Director
Date: , , 1998 Date: 6/4, 1998
---------- --
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Period
July 1, 1997,
Through
March 31,
1998
-------------
Earnings of the Company $288,809
Basic:
Average shares outstanding 608,262
Earnings per share $.47
EXHIBIT 13
<PAGE>
SISTERSVILLE BANCORP, INC.
PORTIONS OF 1998 ANNUAL REPORT
[Pages correspond to printed version of 1998 Annual Report]
<PAGE>
SISTERSVILLE BANCORP, INC.
Corporate Profile
Sistersville Bancorp, Inc. (the "Company") is a Delaware corporation organized
in March, 1997, at the direction of First Federal Savings and Loan Association
of Sistersville (the "Association") to acquire all of the capital stock that the
Association issued in its conversion from the mutual to stock form of ownership
(the "Conversion"). On June 25, 1997, the Conversion was completed and the
Association became a wholly owned subsidiary of the Company and changed its name
to First Federal Savings Bank (the "Bank"). The Company is a unitary savings and
loan holding company which, under existing laws, generally is not restricted in
the types of business activities in which it may engage provided that the Bank
retains a specified amount of its assets in housing-related investments. The
Company conducts no significant business or operations of its own other than
holding all of the outstanding stock of the Bank and investing the Company's
portion of the net proceeds obtained in the Conversion.
The Bank is a federally chartered stock savings bank headquartered in
Sistersville, West Virginia. The Bank is subject to examination and
comprehensive regulation by the Office of Thrift Supervision ("OTS") and its
deposits are federally insured by the Savings Association Insurance Fund
("SAIF"). The Bank is a member of and owns capital stock in the FHLB of
Pittsburgh, which is one of the 12 regional banks in the FHLB system. Unless
otherwise stated, the term "Bank" refers to both the Bank's and Company's
activities on a consolidated basis.
The Bank operates a traditional savings bank business, attracting deposit
accounts from the general public and using those deposits, together with other
funds, primarily to originate and invest in loans secured by single-family
residential real estate.
Stock Market Information
The Company's common stock has been traded under the symbol "SVBC" since it
commenced trading in June, 1997. Price information with respect to the common
shares of SVBC is quoted on the OTC Bulletin Board. The following table sets
forth the high and low bid prices for the common shares of SVBC for each quarter
of fiscal 1998 ending after June 25, 1997, the date of completion of the
Conversion. Price quotations reflect inter-dealer prices without retail mark-up,
mark-down, or commission, and may not represent actual transactions.
Date High Low
---- ---- ---
June 25, 1997 - June 30, 1997 $14.00 $13.13
July 1, 1997 - September 30, 1997 16.00 13.25
October 1, 1997 - December 31, 1997 16.00 14.75
January 1, 1998 - March 31, 1998 16.50 15.50
SVBC declared a semi-annual dividend of $.16 in December, 1997. The number of
shareholders of record of common stock as of the record date of May 29, 1998,
was approximately 200. This does not reflect the number of persons or entitles
who held stock in nominee or "street" name through various brokerage firms. At
May 29, 1998, there were 628,357 shares outstanding. The Company's ability to
pay dividends to stockholders is primarily dependent upon the dividends it
receives from the Bank. The Bank may not declare or pay a cash dividend on any
of its stock if the effect thereof would cause the Bank's regulatory capital to
be reduced below (1) the amount required for the liquidation account established
in connection with the Conversion, or (2) the regulatory capital requirements
imposed by the OTS.
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was recently formed, therefore, its results from operations consist
primarily of interest income from the investing of funds from proceeds generated
by the sale of common stock and expense incurred in the maintaining of the
investment portfolio. The Bank's results of operations are primarily dependent
on its net interest income, which is the difference between the interest income
earned on its assets, primarily loans and investments, and the interest expense
on its liabilities, primarily deposits. Net interest income may be affected
significantly by general economic and competitive conditions and policies of
regulatory agencies, particularly those with respect to market interest rates.
The results of operations are also influenced by the level of non-interest
expense, such as employee benefits and other income, loan-related fees, and fees
on deposit-related services.
The Bank primarily originates fixed-rate loans with terms of up to 30 years and
attempts to maintain sufficient capital and other liquid assets to manage
interest rate risk.
ASSET/LIABILITY MANAGEMENT
The Bank's net interest income is sensitive to changes in interest rates, as the
rates paid on interest-bearing liabilities generally change faster than the
rates earned on interest-earning assets. As a result, net interest income will
frequently decline in periods of rising interest rates and increase in periods
of decreasing interest rates.
To mitigate the impact of changing interest rates on its net interest income,
the Bank manages its interest rate sensitivity and asset/liability products
through two committees of the Board, the Loan Committee and the Interest
Committee. The committees meet, as necessary, to determine the rates of interest
for loans and deposits. Rates on deposits are primarily based on the Bank's need
for funds and on a review of rates offered by other financial institutions in
the Bank's market areas. Interest rates on loans are primarily based on the
interest rates offered by other financial institutions in the Bank's primary
market areas as well as the Bank's cost of funds.
The committees manage the interest rate sensitivity of the Bank through the
determination and adjustment of asset/liability composition and pricing
strategies. The committees then monitor the impact of interest rate risk and
earnings consequences of such strategies for consistency with the Bank's
liquidity needs, growth, and capital adequacy. The Bank's principal strategy is
to manage interest rate sensitivity of its interest earning assets and interest
bearing liabilities by maintaining sufficient capital and other liquid assets in
the event of an increase in interest rate risk, typically because of an increase
in market interest rates.
-5-
<PAGE>
NET PORTFOLIO VALUE
The Bank computes amounts by which the net present value of cash flow from
assets, liabilities and off balance sheet items ("the net portfolio value" or
"NPV") would change in the event of a range of assumed changes in market
interest rates. These computations estimate the effect on the Bank's NPV from
instantaneous and permanent 1% to 4% (100 to 400 basis points) increases and
decreases in market interest rates. Based upon OTS assumptions, the following
table presents the Bank's NPV at March 31, 1998.
Percentage Change in
Net Portfolio Value
-------------------------
Change Board
in Market Projected Policy
Interest Rates Change(1) Limit (2)
-------------- --------- ---------
+400 bp (27)% (45)%
+300 bp (20) (35)
+200 bp (13) (25)
+100 bp (6) (15)
0 bp
-100 bp 3 (15)
-200 bp 4 (25)
-300 bp 6 (35)
-400 bp 9 (45)
- -----------------------
(1) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rate.
(2) Limits are established by the Board of Directors of the Association.
Certain assumptions utilized by the OTS in assessing the interest rate risk of
savings institutions were employed in preparing the previous table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above.
-6-
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of libilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income and expense by the
average balance of assets and liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily average balances
has caused any material differences in the information presented
<TABLE>
<CAPTION>
Year Ended March 31, March 31,
----------------------------------------------------------- ---------------------
1998 1997 1998
----------------------------- ---------------------------- ---------------------
Average Average Average
Average Yield/ Average Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Cost
------- -------- ---- ------- -------- ---- ------- ----
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) $22,873 $1,930 8.44% $21,061 $1,805 8.57% $23,647 8.12%
Investment securities (2) 7,244 397 5.48% 4,174 210 5.03% 6,856 4.94%
Mortgage - backed securities 337 24 7.12% 353 26 7.37% 527 6.93%
------- ------ ----- ------- ------ ------ ------- ------
Total interest - earning assets 30,454 2,351 7.72% 25,588 2,041 7.98% 31,030 7.40%
------ ----- ------ ------ ------- ------
Non-interest - earning assets 709 666 705
------- ------- --------
Total assets $31,163 $26,254 31,735
======= ======= ========
Interest - bearing liabilities:
Regular Savings deposits 8,521 358 4.20% 8,455 338 4.00% 8,195 3.50%
Now Accounts 1,325 37 2.79% 1,062 33 3.11% 1,338 2.50%
Money Market Demand 1,351 51 3.77% 1,626 61 3.75% 1,189 3.25%
Time Deposits 10,033 540 5.38% 10,080 548 5.44% 9,874 5.50%
------- ------- ----- ------- ----- ------ ------- ------
Subtotal Deposits 21,230 986 4.64% 21,223 980 4.62% 20,596 4.38%
Short -term borrowings 0 0 - 0 0 - 0
------- ------- ----- ------- ----- ------ -------
Total interest - bearing liabilities 21,230 986 4.64% 21,223 980 4.62% 20,596
------- ----- ------ ------
Noninterest - bearing liabilities 491 379 558
------- ------- --------
Total Liabilities 21,721 21,602 21,154
Retained Earnings (3) 9,442 4,652 10,581
------- ------- --------
Total liabilities and
retained earnings $31,163 $26,254 $31,735
======= ======= ========
Net interest income $1,365 $1,061
====== ======
Interest rate spread(4) 3.08% 3.36% 3.02%
====== ====== ======
Net yield on interest - earning
assets(5) 4.48% 4.15% 4.49%
====== ====== ======
Ratio of average interest - earning
assets to average interest -
bearing liabilities 143.45% 120.57% 150.67%
====== ====== ======
</TABLE>
_-----------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest - bearing deposits in other financial institutions, FHLB
stock and FHLMC stock
(3) Includes unrealized gain on securities available for sale, net of
applicable deferred income taxes.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net yield on interest - earning assets represents net interest income as a
percentage of average interest - earning assets.
-7-
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
Year Ended March 31,
1998 vs. 1997
-------------------------------
Rate/
Volume Rate Volume Rate
------ ---- ------ ----
Interest-earning assets:
Loans recievable $155 $(27) ($3) $125
Investment securities 154 19 14 187
Mortgage - backed securities (1) (1) 0 (2)
---- ---- -- ----
Total interest - earning assets 308 (9) 11 310
---- ---- -- ----
Interest-bearing liabilities:
Savings deposits 0 4 2 6
Short-term borrowings 0 0 0 0
---- ---- -- ----
Total interest - bearing liabilities 0 4 2 6
---- ---- -- ----
Net change in net interest income $308 ($13) $9 $304
==== ==== == ====
-8-
<PAGE>
Comparison of Financial Condition
In connection with the Conversion on June 25, 1997, the Company completed the
sale of 661,428 shares (the "Offering") at $10 per share and received net
proceeds of approximately $5,665,000. The Company transferred approximately
$3,097,000 of the net proceeds to the Bank for the purchase of all of the
capital stock of the Bank. In addition, $529,140 was loaned to the Bank's
Employee Stock Ownership Plan ("ESOP") for the purchase of shares in the
Offering.
The Company's total assets increased by approximately $4,918,000 to $31,735,000
at March 31, 1998, from $26,817,000 at March 31, 1997. The increase in assets
was directly attributable to the Offering. Investment securities increased
$3,266,000 from $2,648,000 at March 31, 1997, to $5,914,000 at March 31, 1998.
This increase consists predominantly of U.S. Government and Agency securities
and includes a portion of the inflow of cash associated with subscription of
orders received for the purchase of Common Stock in the Offering. The increase
in investments was primarily in the available-for-sale classification, as all
investment purchases, with the exception of mortgage-backed securities
purchased, made during this period were classified as available-for-sale. These
securities have staggering maturities ranging from one to seven years. Net loans
receivable increased $1,922,000 from $21,725,000 at March 31, 1997, to
$23,647,000 at March 31, 1998. The increase in loans was attributable to an
increase in one-to-four family residential mortgage loans. Such increases
primarily reflect the economic health of the Bank's market area and the
competitive pricing of the Bank's loan product. The funding for loan growth was
provided by funds received from the Offering.
Deposits decreased by $1,104,000 to $20,596,000 at March 31, 1998, from
$21,700,000 at March 31, 1997. This decrease primarily represents funds
withdrawn by depositors which were used to purchase stock in the Offering and by
the competitive nature of alternative investment products available to
depositors.
Stockholders' equity increased $5,778,000 to $10,581,000 at March 31, 1998,
compared to $4,803,000 at March 31, 1997. As discussed previously, the increase
was primarily attributed to the Offering and the result of net income of
$374,000 and recognition of shares in the Employee Stock Ownership Plan
amounting to $73,000. The Company also repurchased 5% of its outstanding shares
on March 9, 1998, representing 33,071 shares at a cost of $529,000.
Stockholders' equity also increased by $293,000 as a result of an increase in
net unrealized gains on securities classified as available-for-sale. Through
March 31, 1998, the Company initiated the payment of dividends of $.16 per
share, while maintaining capital ratios well in excess of regulatory guidelines.
Future dividend policies will be determined by the Board of Directors in light
of, among other factors, the earnings and financial condition of the Company,
including applicable governmental regulations and policies.
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest and delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operation of the Bank. Data
processing is also essential to most other financial institutions and many other
companies. All of the material data processing of the Bank that could be
affected by this problem is provided by a third party service bureau. The
service bureau and other vendors of the Bank have advised the Bank that they
expect to resolve this potential problem before the year 2000. However, if the
service bureau is unable to resolve this potential problem in time, the Bank
would likely experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures could have a significant adverse
impact on the financial condition and results of operations of the Bank. The
Company will continue to monitor the progress of the service bureau and other
vendors and will aggressively address problems as they arise.
-9-
<PAGE>
Comparison of the Results of Operations for the Years Ended March 31, 1998 and
1997
Net Income. As a result of the influx of funds related to the Offering, an
increase in loan demand, and the absence of the one-time special assessment
charge in federal insurance premiums in the current period, net income for the
year ended March 31, 1998, increased $226,000, or 153.4%, to $374,000 from net
income of $148,000 for the same period ended 1997.
Interest and Dividend Income. Interest and dividend income increased $309,000,
or 15.2%, to $2,350,000 for the year ended March 31, 1998, compared to
$2,041,000 for the year ended March 31, 1997. The increase in interest income
resulted from an increase in earnings on loans of $125,000, or 6.9%, and an
increase in earnings on investments, including interest-bearing deposits, of
$185,000, or 78.3%. These increases were due to an increase in the average
balance of loans of $1.8 million and investments, including interest-bearing
deposits, of $ 3.1 million for the year ended March 31, 1998, compared with same
period ending in 1997. The increase in interest income on investments and loans
was directly attributable to proceeds received in the Offering. In addition the
average yield on investments increased from 5.03% for the 1997 period to 5.48%
for the 1998 period which was partially offset by a decline in the yield on
loans from 8.57% for the 1997 period to 8.44% for the 1998 period..
Interest Expense. Interest expense increased $7,000 from $979,000 for the year
ended March 31, 1997, to $986,000 for same period ended in 1998. The relative
stability in interest expense was attributable to an increase in the average
balance of interest-bearing liabilities of less than $10,000 to $21,230,000 and
by and increase in the cost of funds of 2 basis points to 4.64% from the 1997
period to the 1998 period.
Net Interest Income. Net interest income increased $302,000, or 28.5%, from
$1,062,000 for the year ended March 31, 1997, to $1,364,000 for the same period
ended in 1998. The Company's net yield on interest-earning assets increased from
4.15% for the year ended March 31, 1997, to 4.48% for the 1998 period.
Provision For Loan Losses. The provision for loan losses decreased $1,500 from
$7,700 for the year ended March 31, 1997, to $6,200 for the same period ended
March 31, 1998. The Bank will continue to monitor its allowance for loan losses
and make future additions to the allowance through the provision for loan losses
as economic conditions dictate. Although the Bank maintains its allowance for
loan losses at a level that it considers to be adequate to provide for the
inherent risk of loss in its loan portfolio, there can be no assurance that
future losses will not exceed estimated amounts or that additional provisions
for loan losses will not be required in future periods. In addition, the Bank's
determination as to the amount of its allowance for loan losses is subject to
review by its primary federal regulator, the Office of Thrift Supervision
("OTS"), as part of its examination process, which may result in the
establishment of an additional allowance based upon the judgment of the OTS
after a review of the information available at the time of the OTS examination.
Noninterest income. Noninterest income decreased by $1,200 from $26,900 for the
year ended March 31, 1997, to $25,700 for the year ended March 31, 1998.
Noninterest income is comprised primarily of service charges on deposit
accounts. An increase in service charges of $2,700 for 1997 to 1998 was offset
by a non-recurring gain on the sale of real estate of $4,000 in the 1997 period.
Noninterest Expense. Noninterest expense decreased by $69,000 from $870,000 for
the year ended March 31, 1997, to $801,000 for the same period ended in 1998.
Noninterest expense decreased primarily as a result of a one-time charge of
$129,000 in federal insurance premiums during the year ended March 31, 1997. On
September 30, 1996, federal legislation was enacted which included the
recapitalization of the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation by a one-time charge to SAIF-insured
institutions of 65.7 basis points per one hundred dollars of insurable deposits.
Supervisory Examination, Audit, and Legal expenses increased by $50,000 from
$25,000 for the year ended
-10-
<PAGE>
March 31, 1997, to $75,000 for the same period ended March 31, 1998, as a result
of additional costs associated with the Company. Compensation and employee
benefits increased $26,000 from $414,000 for the year ended March 31, 1997, to
$440,000 for the same period in 1998. The increase was due primarily to the
Employee Stock Ownership Plan expense from the distribution of additional shares
which was partially offset by the Company operating with one fewer employee.
Income Taxes. Income tax expense increased from $63,000 for the year ended March
31, 1997, to $209,000 for the year ended March 31, 1998, as a result of an
increase in pre-tax income. The effective rate on taxes for the year ended March
31, 1998, was 35.9% compared to 30.0% for the same period ended March 31, 1997.
Liquidity and Capital Resources
The Bank is required by OTS regulations to maintain, for each calendar month, a
daily average balance of cash and eligible liquid investments of not less than
5% of the average daily balance of its net withdrawable savings and borrowings
(due in one year or less) during the preceding calendar month. This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10%.
The Bank's average liquidity ratio was 21.5% at March 31, 1998.
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities, maturities of investment securities, and
funds provided from operations. While scheduled loan repayments are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition. The
Bank uses its sources of funds to fund existing and future existing and future
loan commitments, to fund maturing certificates of deposit and demand deposit
withdrawals, to invest in other interest-earning assets, to maintain liquidity,
and to meet operating expenses.
The Bank has other sources of liquidity if a need for additional funds arises.
Additional sources of funds include a line of credit with the Federal Home Loan
Bank ("FHLB") of Pittsburgh amounting to $2.2 million.
As of March 31, 1998, the Bank had no outstanding advances from the FHLB.
Net cash provided by operating activities for the year ended March 31, 1998,
totaled $632,000 as compared to net cash used by operating activities of $4,000
for the year ended March 31, 1997. The increase of $636,000 was primarily
attributable to an increase in net income of $227,000 from $147,000 for the year
ended March 31, 1997, to $374,000 for the year ended March 31, 1998, and
decreases in various other assets and increases in overall other liabilities
used to reconcile cash provided by operating activities.
Net cash used in investing activities for the year ended March 31, 1998, totaled
$4,795,000, an increase of $3,560,000 from $1,235,000 for the year ended March
31, 1997. The increase in cash used for investing activities was primarily
attributable to purchases of investment securities of $6,291,000 offset by
proceeds from maturities of investments and repayments on mortgage-backed
securities of $3,477,000 and by net loan originations of $1,928,000.
Net cash provided by financing activities for 1998 totaled $3,935,000, as
compared to $609,000 for the 1997. The increase of $3,326,000 was the result of
net proceeds form the stock offering of $5,665,000 offset by a decrease in
deposits of $1,104,000 and by funds used to repurchase shares of $529,000.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, adverse publicity relating to the savings
and loan industry, and similar matters. Management monitors projected liquidity
needs and determines the level desired based, in part, on the Bank's commitments
to make loans and management's assessment of the Bank's ability to generate
funds.
-11-
<PAGE>
Certificates of deposit scheduled to mature during the year ended March 31,
1999, total $5,200,000. The Bank may renew these certificates, attract new
replacement deposits or replace such funds with borrowed funds. Management
believes, based on past experience, that the Bank will retain much of the
deposits or replace them with new deposits.
The Bank is subject to federal regulations that impose certain minimum capital
requirements. At March 31, 1998, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. The Bank is "well capitalized" at
March 31, 1998, according to the regulatory definition. At March 31, 1998, the
Bank's tangible and core capital levels were both $7.8 million (26.8% of total
adjusted assets) and its total risk-based capital level was $8.0 million (55.7%
of total risk-weighted assets). The minimum regulatory capital ratio
requirements of the Bank are 1.5% for tangible capital, 3.0% for core capital,
and 8.0% for risk based capital.
Impact of Inflation and Changing Prices
The consolidated financial statements and the accompanying notes presented
elsewhere in this document, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. Unlike industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the direction or with the same magnitude as the prices
of goods and services.
Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings based on a control-oriented "financial-components"
approach. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and liabilities it has
incurred, derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. The provisions of Statement No. 125
are effective for transactions occurring after December 31, 1996, except those
provisions relating to repurchase agreements, securities lending, and other
similar transactions and pledged collateral, which were delayed until after
December 31, 1997, by Statement No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No.
125." The adoption of these statements did not have a material impact on the
Company's consolidated financial position or results of operations.
In February, 1997, the FASB issued Statement No. 128, "Earnings Per Share,"
effective for financial statements issued for periods ending after December 15,
1997. The new standard specifies the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held common
stock. The adoption by the Company did not have a material impact on
presentation and disclosure for earnings per share.
In July 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 is effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
presentation of comprehensive income and its components (revenue, expenses,
gains, losses) in a full set of general purpose financial statements. It
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is presented with the same prominence as other financial
statements. Statement No. 130 requires that companies (i) classify items of
other comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial condition. Reclassification of financial statements for
earlier periods provided for comprehensive purpose is required.
-12-
<PAGE>
The Company current holds securities classified as available-for-sale. Under the
provisions of Statement No. 130, unrealized gains and losses on securities
classified as available-for-sale are a component of comprehensive income.
In February 1998, FASB issued Statement No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" effective for fiscal years beginning
after December 15, 1997. The new standard revises employers' disclosures about
pension and other postretirement benefits plans. It does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligation and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosure requirements that are no longer
useful. The Statement suggests combined formats for presentation of pension and
other postretirement benefit disclosures. The adoption of this statement is not
expected to have a material impact on presentation and disclosure of pension and
other postretirement benefits.
-13-
<PAGE>
SNODGRASS [LOGO]
Certified Public Accountants and Consultants
Independent Auditor's Report
----------------------------
Board of Directors
Sistersville Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Sistersville
Bancorp, Inc. as of March 31, 1998 and 1997, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sistersville
Bancorp, Inc. at March 31, 1998 and 1997, and the consolidated results of its
operations, changes in shareholders' equity, and cash flows for each of the
years then ended, in conformity with generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
- -----------------------
Wheeling, West Virginia
April 23, 1998, except for Note 16
which is May 16, 1998
-14-
<TABLE>
<CAPTION>
S.R. Snodgrass, A.C.
<S> <C> <C>
980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile: 304-233-3062
</TABLE>
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1998 1997
--------------------- ---------------------
ASSETS
<S> <C> <C>
Cash and Cash Equivalents
Cash and amounts due from banks $ 97,009 $ 81,065
Interest - bearing deposits with other institutions 1,469,028 1,713,394
--------------------- ---------------------
Total cash and cash equivalents 1,566,037 1,794,459
--------------------- ---------------------
Investment Securities
Securities held to maturity (fair value of $536,365
and $335,053) 527,006 328,053
Securities available for sale 5,387,243 2,319,633
--------------------- ---------------------
Total investment securities 5,914,249 2,647,686
--------------------- ---------------------
Loans receivable, (net of allowance for loan losses
of $168,850 and $164,150) 23,646,924 21,724,869
Office properties and equipment, net 378,362 363,538
Accrued interest receivable (net of reserve for
uncollected interest of $5,504 and $6,412) 202,166 144,071
Other assets 27,244 142,127
--------------------- ---------------------
TOTAL ASSETS $ 31,734,982 $ 26,816,750
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 20,595,965 $ 21,699,725
Deferred income taxes 354,210 215,091
Accrued interest payable and other liabilities 203,361 98,620
--------------------- ---------------------
Total liabilities 21,153,536 22,013,436
--------------------- ---------------------
STOCKHOLDERS' EQUITY
Preferred Stock, $.10 par value;
500,000 shares authorized, none issued - -
Common Stock, $.10 par value;
2,000,000 shares authorized; 661,428 issued;
628,357 outstanding at March 31, 1998 66,143 -
Additional paid - in capital 6,152,518 -
Treasury Stock, at cost (33,071 shares in 1998) (529,136) -
Retained Earnings - substantially restricted 4,686,573 4,410,275
Net unrealized gain on securities available for sale 686,337 393,039
Unearned Employee Stock Ownership Plan shares (ESOP) (480,989) -
--------------------- ---------------------
Total stockholders' equity 10,581,446 4,803,314
--------------------- ---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 31,734,982 $ 26,816,750
===================== =====================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-15-
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997
--------------------- -------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Taxable interest on loans $ 1,929,638 $ 1,804,726
Taxable interest on investments 398,476 216,403
Dividends on FHLB stock 13,023 11,602
Dividends on FHLMC stock 9,536 8,230
--------------------- -------------------
Total interest and dividend income 2,350,673 2,040,961
--------------------- -------------------
INTEREST EXPENSE
Deposits 986,282 979,537
--------------------- -------------------
Total interest expense 986,282 979,537
--------------------- -------------------
NET INTEREST INCOME 1,364,391 1,061,424
PROVISION FOR LOAN LOSSES 6,224 7,733
--------------------- -------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,358,167 1,053,691
--------------------- -------------------
NONINTEREST INCOME
Service charges 23,629 20,965
Gain on sale of real estate, net - 3,974
Other income 2,064 1,978
--------------------- -------------------
Total noninterest income 25,693 26,917
--------------------- -------------------
NONINTEREST EXPENSE
Compensation and employee benefits 440,196 413,763
Occupancy 37,370 40,205
Furniture and equipment expense 34,626 34,342
Deposit insurance premiums 13,590 166,722
Supervisory examination, audit and legal 74,835 24,383
Advertising and public relations 24,149 22,385
Service bureau expense 63,416 58,390
Franchise, payroll and other taxes 57,704 49,570
Other expenses 54,868 60,229
--------------------- -------------------
Total noninterest expense 800,754 869,989
--------------------- -------------------
INCOME BEFORE INCOME TAXES 583,106 210,619
INCOME TAXES 209,447 63,145
--------------------- -------------------
NET INCOME $ 373,659 $ 147,474
===================== ===================
EARNINGS PER SHARE (Since July 1, 1997)
Basic and diluted $ 0.47 N/A
===================== ===================
AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 608,262 -
===================== ===================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-16-
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Retained Gain on
Additional Earnings- Securities Unearned Total
Preferred Common Paid In Substantially Available Shares in Treasury Shareholders'
Stock Stock Capital Restricted for Sale ESOP Stock Equity
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
MARCH 31, 1996 $ - $ - $ - $ 4,262,801 $ 284,880 $ - $ - $ 4,547,681
1997 Net Income - - - 147,474 - - - 147,474
Change in Net
Unrealized Gain on
Securities
Available for Sale - - - - 108,159 - - 108,159
-------- ---------- ------------- ------------- ----------- ------------ ------------ --------------
BALANCE,
MARCH 31, 1997 - - - 4,410,275 393,039 - - 4,803,314
1998 Net Income - - - 373,659 - - - 373,659
Sale of Common Stock - 66,143 6,127,984 - - (529,140) - 5,664,987
Accrued compensation
expense - ESOP - - 24,534 - - 48,151 - 72,685
Change in Net
Unrealized Gain on
Securities
Available for Sale - - - - 293,298 - - 293,298
Cash Dividends
declared
($.16 per share) - - - (97,361) - - - (97,361)
Purchase of
Treasury Stock - - - - - - (529,136) (529,136)
-------- ---------- ------------- ------------- ----------- ------------ ------------ --------------
BALANCE,
MARCH 31, 1998 $ - $ 66,143 $ 6,152,518 $ 4,686,573 $ 686,337 $ (480,989) $ (529,136) $ 10,581,446
======== ========== ============= ============= =========== ============ ============ ==============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-17-
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997
--------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 373,659 $ 147,474
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and accretion, net 38,667 36,840
Gain on sale of other real estate - (3,974)
Provision for loan losses 6,224 7,733
Deferred federal income taxes (20,483) (17,436)
ESOP Amortization 72,685 -
Decrease (increase) in accrued interest receivable
and other assets 56,788 (121,809)
Increase (decrease) in accrued interest payable
and other liabilities 56,233 (22,236)
Increase (decrease) in accrued federal income taxes 48,510 (30,468)
--------------------- ---------------------
Net cash provided by (used in) operating activities 632,283 (3,876)
--------------------- ---------------------
INVESTING ACTIVITIES
Purchase of Federal Home Loan Bank Stock - (20,300)
Purchase of available for sale securities (6,039,047) -
Maturity of available for sale security 3,425,000 -
Maturity of held to maturity securities - 400,000
Purchase of mortgage-backed securities held to maturity (251,516) -
Principal collected on mortgage - backed securities 51,669 49,070
Net increase in loans (1,928,279) (1,693,910)
Disposition of real estate owned - 32,620
Purchases of office properties and equipment (53,261) (2,626)
--------------------- ---------------------
Net cash used in investing activities (4,795,434) (1,235,146)
--------------------- ---------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (1,103,760) 608,910
Dividends paid (97,362) -
Purchase of Treasury Stock (529,136) -
Proceeds from sale of common stock 5,664,987 -
--------------------- ---------------------
Net cash provided by financing activities 3,934,729 608,910
--------------------- ---------------------
Decrease in cash and cash equivalents (228,422) (630,112)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,794,459 2,424,571
--------------------- ---------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,566,037 $ 1,794,459
===================== =====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits $ 990,795 $ 981,578
Income taxes 173,104 99,000
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-18-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sistersville Bancorp, Inc. (the "Company") was organized in March, 1997,
as a State of Delaware chartered corporation. The Company acquired 100% of
the common stock of First Federal Savings Bank (the "Bank") upon the
conversion of First Federal Savings and Loan Association of Sistersville
(the "Association") from a federally-chartered mutual savings and loan to
a federally chartered stock savings bank in June, 1997. The operating
results of the Company depend primarily upon the operating results of the
Bank.
Nature of Operations - The Company provides savings and financing services
primarily to individuals through its wholly-owned subsidiary, First
Federal Savings Bank located in Sistersville, West Virginia. Primary
deposit products consist of savings, NOW, and Money Market withdrawal
accounts, and certificates of deposit. Primary lending products consist of
conventional mortgage, construction, and consumer loans. The Bank's
primary market area for lending and deposits consists of Wood, Pleasants,
Tyler, and Wetzel Counties in West Virginia.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, First
Federal Savings Bank. Material intercompany accounts and transactions have
been eliminated.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Held to Maturity Securities - These securities, including mortgage-backed
securities, are purchased with the original intent to hold to maturity and
events which may be reasonably anticipated are considered when determining
the Company's intent and ability to hold to maturity. Securities meeting
such criteria at the date of purchase and as of the balance sheet date are
carried at cost, adjusted for amortization of premiums and accretion of
discounts.
Available for Sale Securities - Debt and equity securities to be held for
indefinite periods of time and not intended to be held to maturity are
classified as available for sale and carried at market value with
unrealized gains and losses, net of tax, reflected as a component of
shareholders' equity until realized. Securities held for indefinite
periods of time include securities that may be sold to meet liquidity
needs or in response to significant changes in interest rates or
prepayment risks as part of the Company's overall asset/liability
management strategy. Realized securities gains and losses are computed
using the specific identification method.
Interest and Fees on Loans - Interest on loans is credited to income as
earned and is accrued only if it is considered collectible. An allowance
for uncollected interest on mortgage loans is provided for all accrued
interest on loans which are delinquent 90 days or more resulting in
interest previously accrued on those loans being reversed from income and,
thereafter, interest is recognized only to the extent of payments
received. Loans are returned to accrual status when less than 90 days
delinquent and when, in management's judgment, collection is probable.
The Company adopted the provisions of Statement of Financial Accounting
Standards Nos. 114 and 118, "Accounting for Creditors for Impairment of a
Loan." It is the Company's policy not to recognize interest income on
specific impaired loans unless the likelihood of future loss is remote.
Interest payments received on such loans are applied as a reduction of the
loan principal balance.
-19-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Since the adoption of SFAS Nos. 114 and 118, the Company had no loans
which management has determined to be impaired.
Loan origination and commitment fees and certain direct loan origination
costs are deferred, and the net amount amortized over the contractual
lives of the related loans or commitments as an adjustment of the related
loan's yield using the interest method.
Allowance for Loan Losses - The allowance for loan losses is maintained at
a level which, in management's judgment, is adequate to absorb credit
losses inherent in the loan portfolio. The amount of the allowance is
based on management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans, and
economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated
cash flows. The allowance is increased by a provision for loan losses,
which is charged to expense and reduced by charge-offs, net of recoveries.
Changes in the allowance relating to impaired loans are charged or
credited to the provision for loan losses. Because of uncertainties
inherent to the estimation process, management's estimate of credit losses
inherent in the loan portfolio and the related allowance may change in the
near term.
Real Estate Acquired in Settlement of Loans - Real estate acquired in
settlement of loans is classified separately on the balance sheets at the
lower of the recorded investment in the property or its fair value minus
estimated costs of sale.
Office Properties and Equipment - Premises and equipment are stated
at cost, less accumulated depreciation. Provisions for depreciation are
computed on the straight-line method over the estimated useful lives of
the assets.
When units of property are disposed of, the premises and equipment
accounts are relieved of the cost and the accumulated depreciation related
to such units. Any resulting gains or losses are credited to or charged
against income. Costs and repairs and maintenance are charged to expense
as incurred. Major renewals and betterments are capitalized at cost.
Income Taxes - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled.
Earnings Per Common Share - On June 25, 1997, the Company issued 661,428
shares of common stock. Earnings per share data has been determined by
dividing net income since July 1, 1997, of $288,809 by the weighted
average number of shares outstanding since the original issue date.
Earnings from June 25, 1997, through June 30, 1997, were determined not to
be meaningful. As discussed in Note 10, the Company accounts for the
52,914 shares acquired by the ESOP in accordance with Statement of
Position 93-6; shares controlled by the ESOP are not considered in the
weighted average shares outstanding until the shares are committed for
allocation to employee accounts. The proforma net income per share for the
1998 period is $.44, assuming the shares had been outstanding for the
entire period.
-20-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February, 1997, the Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 differs from prior accounting guidance in
that earnings per share is classified as basic earnings per share and
diluted earnings per share, compared to primary earnings per share and
fully diluted earnings per share under prior standards. Basic earnings per
share differs from primary earnings per share in that it includes only the
weighted average common shares outstanding and does not include any
dilutive common stock equivalents in the calculation. Diluted earnings per
share under the new standard differs in certain calculations compared to
fully diluted earnings per share under prior standards. The application of
SFAS No. 128 did not have an effect on the earnings per share calculation
for the period ended March 31, 1998. For the period ended March 31, 1998,
basic and diluted earnings per share were the same.
Reclassification - Certain prior year amounts have been reclassified to
conform with the current year's presentation.
Cash Flow Information - The Company's policy is to include cash on hand,
amounts due from depository institutions, and overnight deposits with the
Federal Home Loan Bank in the definition of cash and cash equivalents.
NOTE 2 - SHAREHOLDERS' EQUITY
On June 25, 1997, the Company completed the sale of 661,428 common shares
at $10 per share and received net proceeds of $5,664,987. Included in the
661,428 shares were 52,914 shares acquired by the ESOP.
On March 9, 1998, the Company completed the repurchase of 33,071 shares or
5% of its outstanding common stock in the open market pursuant to a stock
repurchase program.
The following table represents the change in the Company's outstanding
shares:
<TABLE>
<CAPTION>
Preferred Common
Stock Stock
------------ -------------
<S> <C> <C>
Shares outstanding, March 31, 1996 and 1997 - -
Shares issued - 661,428
Shares repurchased - (33,071)
------------- ------------
Shares outstanding, March 31, 1998 - 628,357
============= ============
</TABLE>
-21-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 3 - INVESTMENT SECURITIES
The carrying amounts and fair values of investment securities are as
follows at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Federal Home Loan Bank Stock
(restricted) $ 203,300 $ - $ - $ 203,300
Federal Home Loan Mortgage
Corporation Stock 22,231 1,050,532 - 1,072,763
U.S. Government and
Agency Obligations 4,113,299 1,355 (3,474) 4,111,180
------------- ------------ ----------- -------------
Total Available for Sale 4,338,830 1,051,887 (3,474) 5,387,243
Securities to be Held to Maturity:
Mortgage-Backed Securities-
GNMA and FHLMC 527,006 9,563 (204) 536,365
------------- ------------ ----------- -------------
Total $ 4,865,836 $ 1,061,450 $ (3,678) $ 5,923,608
============= ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Federal Home Loan Bank Stock
(restricted) $ 203,300 $ - $ - $ 203,300
Federal Home Loan Mortgage
Corporation Stock 22,231 627,671 - 649,902
U.S. Government and
Agency Obligations 1,498,588 - (32,157) 1,466,431
------------- ------------ ----------- -------------
Total Available for Sale 1,724,119 627,671 (32,157) 2,319,633
Securities to be Held to Maturity:
Mortgage-Backed Securities-
GNMA 328,053 7,000 - 335,053
------------- ------------ ---------- -------------
Total $ 2,052,172 $ 634,671 $ (32,157) $ 2,654,686
============= ============ =========== =============
</TABLE>
-22-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
The amortized and estimated market value of investment securities at March
31, 1998, by contractual maturity, follow. Expected maturities will differ
from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------------------------------
Securities Securities
Available for Sale Held to Maturity
----------------------------- -----------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 3,109,289 $ 3,106,054 $ - $ -
Due after one year
through five years 204,010 205,126 - -
Due after five years
through ten years 800,000 800,000 - -
Mortgage-backed securities - - 527,006 536,365
Equity securities 225,531 1,276,063 - -
------------- ------------ ----------- -------------
Total $ 4,338,830 $ 5,387,243 $ 527,006 $ 536,365
============= ============ =========== =============
</TABLE>
The Company had no gross realized gains or losses on security sales for
the years ended March 31, 1998 and 1997. There were no transfers of
securities between classifications in 1998 or 1997.
NOTE 4 - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans outstanding at March 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Mortgage Loans:
Construction $ 701,350 $ 141,000
1-4 family 22,593,575 21,036,190
Consumer Loans:
Automobiles 698,752 763,843
Savings account 234,072 296,186
Other 27,000 28,857
Commercial 96,446 27,008
--------------- ---------------
Total 24,351,195 22,293,084
Less:
Allowance for loan losses 168,850 164,150
Undisbursed funds 463,171 322,670
Net deferred loan fees 72,250 81,395
--------------- ---------------
Loans receivable, net $ 23,646,924 $ 21,724,869
=============== ===============
</TABLE>
-23-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 4 - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES (CONTINUED)
Activity in the allowance for loan losses for the years ended March 31,
1998 and 1997, is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Balance, beginning of year $ 164,150 $ 156,417
Add provisions charged to operations 6,224 7,733
--------------- ---------------
170,374 164,150
Less loans charged off 1,524 -
--------------- ---------------
Balance, end of period $ 168,850 $ 164,150
=============== ===============
</TABLE>
In the normal course of business, loans are extended to directors and
executive officers and their associates. In management's opinion, all
loans are on substantially the same terms and conditions as loans to other
individuals and businesses of comparable creditworthiness. Total loans
outstanding to officers and directors at March 31, 1998 and 1997, were
$56,142 and $72,305, respectively.
NOTE 5 - OFFICE PROPERTIES AND EQUIPMENT
Properties and equipment at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Land $ 38,500 $ 38,500
Office buildings and improvements 422,648 406,233
Furniture, fixtures, and equipment 209,688 172,842
--------------- ---------------
Total 670,836 617,575
Less accumulated depreciation 292,474 254,037
--------------- ---------------
Premises and equipment, net $ 378,362 $ 363,538
=============== ===============
</TABLE>
Depreciation charged to operations amounted to $38,438 and $39,802 for the
years ended March 31, 1998 and 1997, respectively.
-24-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 6 - DEPOSITS ANALYSIS
Deposit accounts at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- -----------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Savings accounts $ 8,194,602 39.8% $ 8,653,819 39.9%
NOW accounts 1,338,296 6.5% 1,374,918 6.3%
Money market accounts 1,189,391 5.8% 1,537,368 7.1%
-------------- --------- -------------- ----------
10,722,289 52.1% 11,566,105 53.3%
-------------- --------- -------------- ----------
Certificates of deposit:
4.01 - 6.00% 8,332,910 40.5% 8,032,912 37.0%
6.01 - 8.00% 1,540,766 7.5% 2,100,708 9.7%
-------------- --------- -------------- ----------
9,873,676 48.0% 10,133,620 46.7%
-------------- --------- -------------- ----------
Total $ 20,595,965 100.0% $ 21,699,725 100.0%
============== ========= ============== ==========
</TABLE>
The scheduled maturities of certificates of deposit at March 31, 1998, are
as follows:
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
Within one year $ 5,236,573
Due after one year, but within two years 2,180,155
Due after two years, but within three years 1,116,103
Due after three years 1,340,845
-------------
Total $ 9,873,676
=============
</TABLE>
Certificates of deposit issued in denominations of $100,000 or more
amounted to $410,729 at March 31, 1998, and $402,589 at March 31, 1997.
Deposits in excess of $100,000 are not federally insured.
Interest expense by deposit category is as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997
-------------- -------------
<S> <C> <C>
Savings - passbook $ 358,125 $ 338,216
NOW and money market 87,930 93,280
Time certificates of deposit 540,227 548,041
-------------- -------------
Total $ 986,282 $ 979,537
============== =============
</TABLE>
-25-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 7 - REGULATORY MATTERS
The Subsidiary Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision. Failure to meet the minimum regulatory capital requirements
can initiate certain mandatory, and possible additional discretionary
actions by regulators, that if undertaken, could have a direct material
affect on the Bank's financial statements. Under the regulatory capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines involving
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification under the prompt
corrective action guidelines are also subject to qualitative judgement by
the regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of tangible and core capital (as
defined) to adjusted assets (as defined). Management believes, as of March
31, 1998, that the Bank meets all capital adequacy requirements to which
they are subject.
As of March 31, 1998, the most recent notification from the Office of
Thrift Supervision categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well capitalized", the Bank must maintain minimum total risk- based, Tier
I (core) risk-based, core, and tangible ratios as set forth in the table.
There are no conditions or events since the notification that management
believes have changed the institution's category.
The following table reconciles capital under generally accepted accounting
principles to regulatory capital:
<TABLE>
<CAPTION>
March 31,
1998 1997
------------- -------------
(In Thousands)
<S> <C> <C>
Total equity $ 8,518 $ 4,803
Unrealized gain on securities (687) (393)
-------------- -------------
Tier I (core) and tangible capital 7,831 4,410
Allowance for loan losses 169 160
------------- ------------
Risk-based capital $ 8,000 $` 4,570
============= ============
</TABLE>
-26-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 7 - REGULATORY MATTERS (CONTINUED)
At March 31, the actual capital levels of the Bank and the minimum
required levels are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
Amount Ratio Amount Ratio
---------- ------- --------- -------
<S> <C> <C> <C> <C>
Total Capital to Risk-Weighted Assets
-------------------------------------
Actual $ 8,000 55.65% $ 4,570 35.80%
For capital adequacy purposes 1,150 8.00% 1,022 8.00%
To be "well capitalized" 1,438 10.00% 1,277 10.00%
Tier I (Core) Capital to Risk-Weighted Assets
---------------------------------------------
Actual $ 7,831 54.47% $ 4,410 34.50%
For capital adequacy purposes 575 4.00% 511 4.00%
To be "well capitalized" 863 6.00% 766 6.00%
Tier I (Core) Capital to Adjusted Assets
----------------------------------------
Actual $ 7,831 26.84% $ 4,410 16.70%
For capital adequacy purposes 875 3.00% 793 3.00%
To be "well capitalized" 1,459 5.00% 1,321 5.00%
Tangible Capital to Adjusted Assets
-----------------------------------
Actual $ 7,831 26.84% $ 4,410 16.70%
For capital adequacy purposes 438 1.50% 396 1.50%
To be "well capitalized" N/A N/A N/A N/A
</TABLE>
NOTE 8 - INCOME TAX
Until 1996, thrift institutions were permitted a special bad debts
deduction limited generally to 8% of otherwise taxable income and subject
to certain limitations based on aggregate loans and savings account
balances at the end of the year. On August 20, 1996, the Small Business
Job Protection Act (the "Act") was signed into law. The Act eliminated the
percentage of taxable income bad debt deduction for thrift institutions
and requires that bad debts for federal income tax purposes be determined
based primarily on the experience method. The Act provides that bad debt
reserves accumulated after 1987 are subject to recapture over a maximum of
six years. The Act provides that bad debt reserves accumulated prior to
1988 be exempt from recapture. If the amounts that qualify as deductions
for federal income tax purposes are later used for purposes other than for
bad debt losses, they will be subject to federal income tax at the then
corporate rate. Retained income, at March 31, 1998 and 1997, included
approximately $618,000 (pre 1988 reserves) for which federal income tax
has not been provided.
-27-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 8 - INCOME TAX (CONTINUED)
The provisions for Federal income taxes consist of:
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997
------------ --------------
<S> <C> <C>
Current $ 229,930 $ 80,581
Deferred (20,483) (17,436)
------------ ------------
Total $ 209,447 $ 63,145
============ ============
</TABLE>
The following temporary differences gave rise to the deferred tax (asset)
liability at:
<TABLE>
<CAPTION>
March 31,
1998 1997
------------ -------------
<S> <C> <C>
Deferred loan fees $ (24,565) $ (27,674)
Other income and expense recognized in the financial
statements on the accrual basis, but on the cash basis
for tax purposes 13,464 31,440
Bad debt reserve, net (24,143) (13,260)
Depreciation 19,761 12,654
Others 7,398 9,456
------------ ------------
(8,085) 12,616
Unrealized gains on available-for-sale securities 362,295 202,475
------------ ------------
Net deferred tax liability $ 354,210 $ 215,091
============ ============
</TABLE>
A reconciliation between the amount of reported income tax expense and the
amount computed by applying the statutory federal income tax rate to
income before income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997
------------ ------------
<S> <C> <C>
Tax at statutory rate (34%) $ 198,256 $ 71,610
Increase (decrease) in taxes resulting from:
Surtax exemption 9 (6,507)
Nondeductible ESOP compensation 8,342 -
Other, net 2,849 (1,958)
------------ ------------
Total $ 209,447 $ 63,145
============ ============
Effective rate 35.9% 30.0%
============ ============
</TABLE>
-28-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 9 - RETIREMENT PLAN
The Bank participates in the multi-employer Financial Institutions
Retirement Fund covering all full-time officers and employees completing
one year of service and attainment of age 21. Because the plan is a
multi-employer plan, plan information for the Bank separately is not
determinable. Pension expense, including administrative charges, for the
years ended March 31, 1998 and 1997, was $600 and $9,150, respectively.
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
During the year ended March 31, 1998, the Bank adopted an ESOP for the
benefit of officers and employees who have met certain eligibility
requirements related to age and length of service. An ESOP trust was
created and acquired 52,914 shares of common stock in the Company's
initial public offering, using proceeds of a loan obtained from the
Company, which bears interest at an annual rate of 8.25%. The loan, which
is secured by shares of stock purchased, calls for quarterly interest over
a ten-year period and annual principal payments of $52,914.
The Bank is scheduled to make quarterly contributions to the trust to
allow the trust to make the required interest payments and an annual
contribution to allow the trust to make the required principal payment.
Shares are released from collateral based upon the proportion of annual
principal payments made on the loan each year and allocated to qualified
employees. As shares are committed to be released from collateral based on
the terms of the loan, the Bank reports compensation expense based upon
the fair value of the shares, and the shares become outstanding for
earnings per share computations. Dividends paid on allocated ESOP shares
are recorded as a reduction of retained earnings. Dividends paid on
unallocated shares are recorded as compensation expense.
The following table represents the components of the ESOP shares at March
31, 1998:
Allocated shares -
Shares committed for allocation 4,815
Shares distributed -
Unallocated (noncommitted) shares 48,099
-------------
Total ESOP shares 52,914
=============
Fair value of noncommitted shares $ 751,547
=============
-29-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Subsidiary Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
consolidated balance sheets. The contract amounts of these instruments
reflect the extent of involvement the institution has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
The following represents financial instruments whose contract amounts
represent credit risk at March 31:
<TABLE>
<CAPTION>
Contract Amount
--------------------------------
1998 1997
------------- --------------
<S> <C> <C>
Commitments to originate loans:
Fixed rate $ 891,000 $ 404,000
Loans in process 463,000 323,000
Unused lines of credit 170,000 -
------------- -------------
Total $ 1,524,000 $ 727,000
============= =============
</TABLE>
The range of interest rates on fixed rate residential mortgage loan
commitments was 7.25% to 8.00% at March 31, 1998.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counter party. Collateral held consists primarily of single-family
residences.
Concentration of Credit Risk
The Subsidiary Bank's real estate loans and loan commitments are primarily
for properties located throughout Northern West Virginia. Repayment of
these loans is in part dependent upon the economic conditions in this
region. These loans are primarily at fixed interest rates.
-30-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating fair values
of financial instruments as disclosed herein:
Cash and Cash Equivalents: For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment Securities and Securities Held for Sale: For debt
securities and marketable equity securities held for investment
purposes and for sale, fair values are based on quoted market prices
or dealer quotes. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans: For certain homogeneous categories of loans, such as some
residential mortgages, fair value is estimated using the quoted market
prices for securities backed by similar loans. The fair value of other
types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposit Liabilities: The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered
for deposits of similar remaining maturities.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
------------------------------- ------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 1,566,000 $ 1,566,000 $ 1,794,000 $ 1,794,000
Securities available for sale 5,387,000 5,387,000 2,320,000 2,320,000
Securities held to maturity 527,000 536,000 328,000 335,000
Loans, net 23,647,000 24,240,000 21,725,000 21,782,000
Financial Liabilities:
Deposits 20,596,000 20,663,000 21,700,000 21,584,000
</TABLE>
-31-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 13 - DEPOSIT INSURANCE
Saving Association Insurance Fund member institutions were assessed a
one-time deposit insurance premium to recapitalize the Fund as a result of
legislation signed into law by the President on September 30, 1996. The
assessment totaled approximately $129,000 and was assessed at a rate of
65.7 basis points per $100 of deposits at March 31, 1995. The charge is
reflected in the consolidated statement of income for the year ended March
31, 1997. As a result of the assessment, the Bank's deposit insurance rate
was reduced from $.23 to $.064 per $100 of deposits.
NOTE 14 - CONVERSION AND REORGANIZATION
On December 5, 1996, the Board of Directors of the Association adopted the
Plan of Conversion pursuant to which the Association proposed to convert
from a federally-chartered mutual savings and loan to a
federally-chartered stock savings bank and concurrently form a unitary
savings and loan holding company.
As part of the conversion process, the Company was organized in March,
1997, at the direction of the Board of Directors of the Association for
the purpose of acquiring all of the capital stock to be issued by the Bank
in the Conversion. After approval by regulatory authorities and the
Association's members, the conversion was completed on June 25, 1997. The
Company became a unitary savings and loan company with its principal
assets being the capital stock of the Bank and a percentage of the
Conversion proceeds permitted to be retained. From the proceeds from the
sale of 661,428 shares of stock at $10.00 per share, $66,143 was allocated
to common stock based on a par value of $.10 per share and $6,127,984,
which is net of conversion costs of $420,153, was allocated to additional
paid-in capital.
In accordance with regulations, at the time that the Association converted
from a mutual savings and loan to a stock savings bank, a portion of
retained earnings will be restricted by establishing a liquidation
account. The liquidation account will be maintained for the benefit of
eligible account holders who continue to maintain their accounts at the
Bank after the conversion. The liquidation account will be reduced
annually to the extent that eligible account holders have reduced their
qualifying deposits. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. In the event of a
complete liquidation of the Bank, each account holder will be entitled to
receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts
then held.
NOTE 15 - ADVANCES FROM FEDERAL HOME LOAN BANK
As of March 31, 1998, the Bank had a Flexline Line-of-Credit with the
Federal Home Loan Bank of $2,199,000, of which there were no amounts
outstanding.
-32-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 16 - SUBSEQUENT EVENTS
Effective May 7, 1998, the Company and Subsidiary Bank offered individual
retirement agreements with current directors of the Company and the Bank
having completed a minimum of fifteen years of service. Under the terms of
the agreement, retiring directors are to receive $1,200 for each year of
past service as a board member of the Bank or Association and the Company.
Retirement benefits are payable either in quarterly installments over a
five-year period commencing September 17, 1998, or in a lump sum with the
total benefit discounted at an annual rate of five percent (5%). Directors
executing the retirement agreement shall discontinue serving as an active
director to the Company and Bank on July 2, 1998. Directors were required
to execute the agreement no later than May 16, 1998. It is the intention
of the Company that this be a special one-time offer.
At May 16, 1998, four directors executed retirement agreements. Based on
the past service of those directors involved, the Company will take a
pre-tax charge of $94,000 in the first fiscal quarter of the year ending
March 31, 1999, representing the present value of benefit payments.
NOTE 17 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
Effective June 25, 1997, active operations of Sistersville Bancorp, Inc.
were initiated with the approval of the stock conversion of the
Association and correspondent purchase of all the stock of the
wholly-owned Subsidiary Bank by the Company, which coincided with the
initial public offering of the Company stock. The condensed financial
statements of Sistersville Bancorp, Inc.
are as follows:
BALANCE SHEET
MARCH 31, 1998
ASSETS
Deposits with Subsidiary Bank $ 527,559
Investment in Subsidiary Bank 7,988,561
Investment securities available for sale 1,460,000
Loan receivable from ESOP 529,140
Receivable from Subsidiary 72,685
Other assets 34,616
--------------
TOTAL ASSETS $ 10,612,561
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 31,115
Shareholders' equity 10,581,446
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,612,561
==============
-33-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
NOTE 17 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF INCOME
JUNE 25, 1997, TO MARCH 31, 1998
INCOME
Interest $ 129,012
OPERATING EXPENSES 49,339
Income before income tax and equity
in undistributed income of Subsidiary 79,673
INCOME TAX 29,468
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 238,604
-------------
NET INCOME $ 288,809
=============
STATEMENT OF CASH FLOWS
JUNE 25, 1997, TO MARCH 31, 1998
OPERATING ACTIVITIES
Net income $ 288,809
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of Subsidiary (238,604)
Investment amortization/accretion, net (1,454)
Increase in other assets (34,616)
Increase in other liabilities 31,115
-------------
Net cash used in operating activities 45,250
-------------
INVESTING ACTIVITIES
Investment in Subsidiary (3,097,025)
Investment purchases (2,459,156)
Investment maturities 1,000,000
-------------
Net cash used in investing activities (4,556,181)
-------------
FINANCING ACTIVITIES
Net proceeds from sales of common stock 5,664,987
Purchase of treasury stock (529,136)
Dividends paid (97,361)
-------------
Net cash used in financing activities 5,038,490
-------------
INCREASE IN CASH AND CASH EQUIVALENTS 527,559
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR -
-------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 527,559
=============
SUPPLEMENTAL DISCLOSURES
Income tax payments $ 22,000
Interest paid -
-34-
<PAGE>
SISTERSVILLE BANCORP, INC. AND FIRST FEDERAL SAVINGS BANK
CORPORATE OFFICE INDEPENDENT AUDITORS
- ---------------- --------------------
726 Wells Street S.R. Snodgrass, A.C.
Sistersville, WV 26175 980 National Road
(304) 652-3671 Wheeling, WV 26003
SPECIAL COUNSEL
- ---------------
Malizia, Spidi, Sloane and Fisch, P.C.
One Franklin Square
1301 K Street, N.W. Suite 700 East
Washington, D.C. 20005
TRANSFER AGENT
- --------------
American Stock Transfer & Trust COmpany
40 Wall Street
New York, NY 10005
SISTERSVILLE BANCORP, INC. AND FIRST FEDERAL SAVINGS BANK
- --------------------------------------------------------
BOARD OF DIRECTORS
- ------------------
Lester C. Doak, Chairman Margaret A. Peters
Ellen E. Thistle James E. Willison
David W. Miller Charles P. LaRue
Guy L. Nichols Dorsey R. Ash
Gary L. Ward Stanley M. Kiser
SISTERSVILLE BANCORP, INC. OFFICERS
- -----------------------------------
Stanley M. Kiser, President
Cynthia R. Carson, Vice-President & Corporate Secretary
Shelley R. Maxwell, Treasurer
FIRST FEDERAL SAVINGS BANK OFFICERS
- -----------------------------------
Stanley M. Kiser, President & CEO
Cynthia R. Carson, Vice-President & Corporate Secretary
Barbara Vincent, Vice-President - Savings
Shelley R. Maxwell, Treasurer
P. Jane Fuchs, Cashier
Sistersville Bancorp, Inc.'s Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1998, as filed with the Securities and Exchange Commission, is
available without charge to shareholders upon written request. The 1998 Annual
Meeting of Stockholders will be held on July 16, 1998, at 2:00 P.M., at the
Wells Inn, 316 Charles Street, Sistersville, West Virginia.
-35-
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Percentage of
Jurisdiction of Ownership held
Subsidiary Incorporation by Registrant
- ---------- ------------- --------------
First Federal Savings Bank United States 100%
The financial statements of the subsidiary of the registrant are consolidated
with those of the registrant.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 97
<INT-BEARING-DEPOSITS> 1,469
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,387
<INVESTMENTS-CARRYING> 527
<INVESTMENTS-MARKET> 536
<LOANS> 23,647
<ALLOWANCE> 169
<TOTAL-ASSETS> 31,735
<DEPOSITS> 20,596
<SHORT-TERM> 0
<LIABILITIES-OTHER> 558
<LONG-TERM> 0
0
0
<COMMON> 66
<OTHER-SE> 10,515
<TOTAL-LIABILITIES-AND-EQUITY> 31,735
<INTEREST-LOAN> 1,930
<INTEREST-INVEST> 420
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,350
<INTEREST-DEPOSIT> 986
<INTEREST-EXPENSE> 986
<INTEREST-INCOME-NET> 1,364
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 801
<INCOME-PRETAX> 583
<INCOME-PRE-EXTRAORDINARY> 374
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
<YIELD-ACTUAL> 4.5
<LOANS-NON> 166
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 164
<CHARGE-OFFS> 2
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 169
<ALLOWANCE-DOMESTIC> 169
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
